Welcome to our Emergency Budget newsletter.
This newsletter aims to summarise the main measures that affect our clients. If you need further assistance just let us know.
The budget was a mixed bag with some good news and some bad news, if you aren’t sure how the budget affects your business or your personal tax don’t hesitate to call us.
Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
A rise in the standard rate of VAT to 20% was widely expected, but this increase has been delayed until 4 January 2010, which is the first working day after the Christmas break.
The 1% point increase in NI rates from 6 April 2011 is already planned, but we are assured by George that through some manipulation of thresholds this increase will not be felt by most people. However, we won’t know the exact starting points for employers and employees NI until the Autumn Budget statement on 20 October 2010.
Basic rate taxpayers aged under 65 will benefit from a £1,000 increase in their personal allowance from 6 April 2011. Those aged over 65 already receive a higher personal allowance, if their total income is below £28,930.
Capital Gains Tax
All trustees and personal representatives with any level of income and gains will also rise to 28% from 23 June 2010.
We thought the Government would not increase the rate of CGT in the middle of a tax year, as that would cause so many complications when calculating the tax due for 2010/11. However, that is exactly what George plans to do. The increase in CGT is not as high as many feared, as it is still well below the highest income tax rates of 40% and 50%. Although trusts are particularly badly hit as they will pay the higher rate of CGT on all gains and only have half the annual exemption of individuals. There are special rules for trusts for the disabled.
The annual exemption remains at £10,100 for individuals and £5,050 for most trusts.
All gains that qualify for entrepreneur’s relief will continue to be taxed at 10%, whether the disposal is made before or after the changes on 23 June. There will be an increase from £2 million to £5 million in the lifetime limit on gains that can qualify for entrepreneurs’ relief from 23 June 2010 and this is very welcome, but many gains will never qualify for that relief. For example, the sale of a commercial property, which is not associated with the disposal of a trading business, will not qualify for the relief. Letting of commercial property does not count as a trading business for entrepreneurs’ relief.
If you are in the middle of arranging a large sale, you could escape the CGT rise if you have already exchanged contracts. This is because the disposal date for CGT is the date that unconditional contracts are exchanged, not the completion date for the deal. If the contract is conditional, the disposal date is the date those conditions are satisfied. The disposal date for a gift is the date the beneficial ownership passes.
Child Benefit and Tax Credits
Working and Child Tax Credits are to be withdrawn gradually from families with total income of £40,000 or more from April 2011. The special baby rate will be withdrawn at the same time, but the child element for less well-off families will increase by £150. There are a number of other changes planned for later years including a reduction in the period for which claims can be back-dated.
Child Trust Fund
Retirement and Pensions
From April 2011 the state pension will be increased by the greater of: the annual increase in earnings or prices, or 2.5%. The standard minimum income guarantee given under the Pension Credit will be increased by the same amount as the state pension.
When a member of a money purchase pension scheme reaches age 75 they are required to purchase an annuity to provide their future pension, or heavy charges can apply. This requirement to purchase annuity at age 75 is to be scrapped from April 2011. In the meantime if the scheme member has not reached age 75 by 22 June 2010, they can defer purchasing an annuity until age 77.
Tax relief for pension contributions is expected to be limited to around £35,000 per year per person from April 2011. This cap will replace the complex tapering of tax relief that was due to apply to individuals with total income of £180,000 or more.
Currently employees can be required to retire when they reach the default retirement age of 65. The Government is going to consult on how to remove this default retirement age.
Furnished Holiday Lettings
The main pool rate is reducing from 20% to 18% from that date and the special pool rate from 10% to 8%. The Annual Investment Allowance (AIA) Limit is also reducing from £100,000 to £25,000 from 1 April 2012.
Small businesses will not be affected if all of their expenditure on equipment is within the annual investment allowance, which gives 100% deduction for costs in the year of purchase. Unfortunately expenditure on cars cannot be covered by the AIA. However, expenditure on new (not second-hand) low emissions cars and vans can be covered by a separate 100% allowance.
This scheme will start in September 2010 but will apply to new businesses set up on and after 22 June 2010. It will only apply in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands and the South West regions. Certain businesses are excluded, such as those under the IR35 or Managed Service Company rules, and businesses in grant-supported sectors such as agriculture, fisheries and coal. More details are expected to be made available shortly.
Change of Standard Rate
If you are planning to invoice or pay in advance to avoid the VAT rise, think again. There will be a special 2.5% VAT charge on such advance sales where the customer cannot recover all the VAT on the supply, and one or more of the following applies:
– the supplier and customer are connected,
– the supplier funds the purchase,
– the payment is not due for at least six months;
– the value of the supply is £100,000 or more, unless the prepayment or advance invoice is normal commercial practice.
Flat Rate Scheme
The flat rates that are applied to gross sales under the flat rate scheme will increase on 4 January 2010 to reflect the increase in the standard rate of VAT. If your business will no longer benefit from using the flat rate scheme you can leave scheme at any time.
Payments on Account
The Government is to consider whether a General Anti-Avoidance Rule would be effective in reducing tax avoidance. It will also examine the following anti-avoidance measures:
– Expand the disclosure of tax avoidance schemes regime to include schemes involving IHT on trusts.
– Block the manipulation of consortium relief.
– Restrict the use of employee trusts, including employer finance retirement benefit schemes (EFRBS).
– Amend Stamp Duty Land Tax due on high value property transactions.
– Alcoholic duties rates on strong cider will reduce from 30 June 2010, back to the levels which were in place before the March 2010 Budget.
– A bank levy on bank’s balance sheet values will be introduced from 1 January 2010 at 0.04% , which will rise to 0.07%.